From savior to executioner: new lawsuit accuses Sears ex-chairman Eddie Lampert of looting retailer before its demise

FILE- In this Nov. 17, 2004, file photo Kmart chairman Edward Lampert listens during a news conference to announce the merger of Kmart and Sears in New York. Sears Holdings Corp. is suing its former chairman and largest shareholder Eddie Lampert, alleging the billionaire stripped the once iconic company of more than $2 billion in assets. The lawsuit, which was filed late Wednesday, April 17, 2019. (Gregory Bull/AP)

A new lawsuit accuses former Sears chairman Eddie Lampert and others of looting the retail chain of billions in assets as it flagged before his hedge fund bailed it out of bankruptcy.

U.S. Treasury Secretary Steven Mnuchin is also among the defendants in the case filed in U.S. bankruptcy court in White Plains, New York and made public on Thursday, Reuters reported.

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In February Lampert had bought the retail giant’s assets at a bankruptcy auction for $5.2 billion under the auspices of his hedge fund, ESL Investments Inc., ostensibly saving it and thousands of jobs. But the lawsuit charges that in allegedly siphoning assets off before that, Lampert helped cause its demise.

The retail chain had been steadily selling core assets to meet daily expenses before filing for bankruptcy, Reuters said.

“Had defendants not taken these improper and illegal actions, Sears would have had billions of dollars more to pay its third-party creditors today and would not have endured the amount of disruption, expense, and job losses resulting from its recent bankruptcy filing,” the complaint said, according to Reuters.

At least $2 billion in assets were transferred beyond creditors’ reach, reported Bloomberg, quoting the complain. The suit seeks for the transactions to be ruled as fraudulent, and for creditors to be compensated, Bloomberg said.

The suit was filed by Sears Holdings Corp., the team of lawyers overseeing the defunct chain’s dissolution, in U.S. Bankruptcy Court, Southern District of New York. Besides Lampert and Mnuchin – the two were roommates at Yale and worked together at both ESL and Goldman Sachs – defendants include ESL itself; the hedge fund’s president, Kunal Kamlani; Bruce Berkowitz and Fairholme Capital Management, a large shareholder, and Seritage Growth Properties, which spun off 266 Sears stores in 2015, according to Reuters.

ESL issued a statement on their behalf labeling the allegations as “misleading or just flat wrong,” and saying all transactions were executed in good faith and benefited shareholders, according to Reuters.